NewMarket Corp (NEU) 2004 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to the Ethyl first-quarter 2004 financial results conference call. At this time, all lines have been placed on a listen only mode and the floor will be opened for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mr. David Fiorenza, Vice President and Treasurer of Ethyl. Sir, the floor is yours.

Thank you. Thanks for joining our conference call today to discuss earnings. With me today are Teddy Gottwald, our CEO and President, and Steve Edmonds, our General counsel.

I have a few planned comments, after which we will open the lines for any questions.

As a reminder, some of the comments we will make today are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. We believe our statements are based on reasonable expectations and assumptions. However, we offer no assurance that actual results will not differ materially from our expectations. A full discussion of these factors can be found in our most recently filed 10-K.

The first quarter was a good quarter for each of our two segments. The quarter did not include any special items, so the analysis is fairly straightforward. Petroleum Additives showed improvement in both net sales and operating profit, as compared to the first quarter of last year. All of my comparisons will be to the first quarter of last year.

Net sales of about 215 million were up 43 million, or about 25 percent. Shipments across most product lines were higher than last year and we had about a 25 percent increase in quantity shipped. This impact, along with product mix, accounted for about 36 million of that increase. The remaining increase in sales was caused predominantly by favorable foreign exchange.

First quarter of '04 operating profit was $14.9 million, as compared to 11.3 last year. This represents an increase of over 30 percent compared to that period.

So, in the first quarter, Petroleum Additives benefited from higher shipments and favorable foreign exchange. There are several items partially offsetting these improvements. Raw material prices were higher between the quarters and continued to negatively affect our margins. R&D was $2 million higher. The increase included an unfavorable foreign exchange impact and higher spending in support of product development. Selling, General and Administrative expenses were up 2.4 million. This was due to foreign exchange and general cost increases.

In summary, for Petroleum Additives, a good quarter in revenue and profit, improvements across all product groups but raw materials have moved up significantly from the first quarter of last year.

Tetraethyl Lead or TEL -- as you know, we only record a small portion of the revenues associated with this business since the marketing activity is through agreements with Octel. So, let's take a look at profits. The operating profit from our marketing agreement for the first quarter was 7.3 million, which is 4.3 million higher than last first quarter. These results reflect slightly higher volumes, as well as improved pricing.

Other TEL operations not included in the marketing agreement improved 1.6 million for the first quarter, primarily reflecting lower environmental and legal expenses.

First-quarter interest and financing expenses were $400,000 lower than last year. Lower average debt resulted in a decrease of about 800,000, while higher average interest rates resulted in an increase. The higher interest rate is because we had the bonds in place this whole quarter whereas last year, we did not.

Putting all of these together, our net income from recurring operations was 35 cents a share this year, as compared to a loss of 1 cent last year. As a reminder, last year's first quarter included the one-time gain associated with the sale of the antioxidant business, so last year's total first-quarter earnings were higher but the recurring portion of that number was a 1 cent loss.

Turning to cash flows, we had combined, current and noncurrent debt of $194 million at March 31, which is a reduction of 14.7 million from December. The net reduction in debt included a repayment of 14.6 million on our term loan and a $100,000 reduction in the capitalized lease obligation.

As a percentage of total capitalization, long-term debt and shareholders equity, our total debt decreased from 51 percent at the end of '03 to 48.6 percent at March 31.

During the first three months of this year, we made contributions of $3 million to our domestic pension plans and 1 million for domestic post-retirement plans. We continue to expect to make total contributions of about 4 million for each of the U.S. pension and post-retirement plans this year and about 6 million into our foreign plans this year.

We estimate our capital spending this year will be around $15 million. We will finance this through the cash flow from operations.

As you know, we do not give specific guidance with respect to future earnings. I do want to make sure we have been clear on the outlook and the challenges within our businesses. Petroleum Additives have enjoyed success in its markets through increased volumes, driven by specific gains at accounts and some improvement due to increased economic activity. The improvement associated with this increased activity will be partially offset by the significant escalation in raw materials, both in increases we have seen and those we know we will be facing in the remainder of the year. We are in the process of trying to recover some of these costs through price increases. We do not expect the price increases to cover all of our additional raw material costs.

Two other items affecting Petroleum Additives are foreign currency movements and the announced suspension of purchase of MMT in Canada by certain of our customers.

On TEL, we expect volumes to continue to decline as the uses of the product around the world continues to be phased out. Improved margins will partially offset the volume decline. As a reminder, TEL historically has had a high degree of variation in its quarter-to-quarter performance, which variation we expect to continue.

That is the end of my planned comments. Nancy, could we open it up for questions?

Thank you. The floor is now open for questions and comments. (OPERATOR INSTRUCTIONS). Bill Hoffman of UBS.

Good afternoon. Dave, I wonder if you could talk a little bit about this volume increase that you had in the first quarter. Was there any seasonal pull into the first quarter from the second? Then just to sort of further develop that thought, as we go into the second half of the year, do you expect to see any change in volumes due to some of the change-over in requirements, or where do you stand on those issues for this year?

Okay. Bill, it is factual that we had a 25 percent improvement in shipments of the first quarter. But if you take a look at last year, you will see that our shipments and our revenues improved steadily each quarter last year. So, when I look at this, I also take a peek at the fourth quarter of last year and see more like a 5, 6, 7 percent increase quarter-on-quarter. So I guess I am saying I'm not expect expecting a 30 percent volume increase quarter-on-quarter, or 25 like this, but the follow-through of some gains we had last year I expect to see.

So, you would expect that we are running at this level then?

Right, that is correct.

Then with regards to the new regulations, sort of the change-over, do we expect to see any change in your business in the second half of the year?

Are you talking about the new oil spec? GF-4?

Yes.

I don't expect to see more than a modest change associated with that.

The next question has to do with the cost increases. I know you don't want to necessarily give us specific guidance there, but could you just help us quantify a little bit on how much the cost might go up as in percentage terms, or how much margin squeeze we might get from this cost push? I mean, is it a 1 or 2 percent sort of EBITDA squeeze on the cost push?

You are right; we don't. I mean, there's a lot of mix involved but 5 percent EBITDA squeeze wouldn't be unreasonable -- that kind of a range. I mean, Bill, it's so much different product-to-product, I'd just hate to put a number out there.

That's fine. Then just with regards to -- back to the volume just for a question, any of the specific areas where you've been picking up the shares? Is it in the drive line? Is it engine oils? Where is it?

We had specific gains but it's been pretty much across the board. Our strength is in specialties and fuels, as you know.

Right. I would assume that the industrial part is also starting to pick up at this point, just on pure economics?

Just from some general economic improvement.

(OPERATOR INSTRUCTIONS). Mr. Fiorenza, we have no further questions at this time.

Okay, I have a closing comment. Just as reminder to our shareholders, you are invited to attend our annual meeting on Thursday May 27th of this year at the Tredegar Ironworks in Richmond, Virginia. You should be receiving the proxy for our annual meeting in the mail shortly, if you haven't already received it. We ask that you carefully read the proxy and all related documents. Regardless of whether you expect to attend the meeting, don't forget to vote your shares by completing, signing and dating the proxy card and returning it to the Company. Thank you very much.

Thank you, everyone. This does conclude today's teleconference. You make disconnect all lines at this time and have a wonderful day.